PLI 2.0 for IT hardware to levy penalty on failure to reach manufacturing targets

The government aims to triple India's electronics manufacturing industry from the current $105 billion to over $300 billion with the PLI 2.0 scheme.

The second iteration of the production-linked incentive scheme for IT hardware like tablets and laptops has introduced a penalty of 5-10 percent for companies that fall short of their declared manufacturing goals, a gazette notification released on May 30 showed.

However, the details of the scheme released today showed a lot of elbow room for electronics manufacturers to encourage them to set up and increase production of computing devices in the country.

Earlier this month, the Cabinet had approved a renewed PLI scheme for IT hardware worth Rs 17,000 crore with a six-year tenure, aimed at boosting the domestic manufacturing of laptops, tablets, all-in-one PCs, servers, and ultra-small form factor devices. It is expected to stimulate incremental production worth Rs 3.35 lakh crore and create 2 lakh employment opportunities.

While the earlier scheme had instituted incentives of up to 2 percent of net sales of domestically manufactured goods, the newly approved version raises the basic incentive level to over 5 percent.

Furthermore, the new scheme also seeks to promote local manufacturing of smaller components in computing devices by introducing additional incentives of up to 3 percent for companies that procure domestically produced components such as memory chips, printed circuit board assemblies, solid-state drives, chassis, power supply components, and adaptors.

The notification also showed that there will be an extra leeway for electronics manufacturing companies to apply for incentives in advance, even though they may start their production in the country up to two years later i.e. April 1, 20025. The window for applications will open on July 1 for a period of 45 days, but this timeline can be extended later.

Interestingly, the PLI scheme has also introduced a rider on the data protection front as it has mandated that beneficiaries are required to use firmware for servers from Indian sources or other trusted foreign sources as certified by MeitY. Firmware are software programmes embedded in computing devices to help them operate effectively.

Earlier, the Draft Digital Personal Data Protection Bill, 2022 had come up with the framework of trusted geographies — countries whitelisted by the government where data of Indian users can be transferred to.

The government aims to triple India's electronics manufacturing industry from the current $105 billion to over $300 billion with the PLI 2.0 scheme. This growth is expected to eliminate the need for subsidies in the electronics sector, and the industry could eventually reach a trillion dollars, rivalling China's electronics manufacturing sector.